PR Newswire | Nov 3, 2021 04:10PM EDT

11/03 15:10 CDT

Blackbaud Announces 2021 Third Quarter ResultsThird Quarter Recurring Revenue Increases 9% Year-Over-Year; Drives 30% Growth in Earnings Per Share CHARLESTON, S.C., Nov. 3, 2021

CHARLESTON, S.C., Nov. 3, 2021 /PRNewswire/ -- Blackbaud (NASDAQ: BLKB), the world's leading cloud software company powering social good, today announced financial results for its third quarter ended September 30, 2021.

"Third quarter results reflected a fantastic quarter of execution for Blackbaud, exceeding our expectations on a much-improved market backdrop," said Mike Gianoni, president and CEO, Blackbaud. "We achieved near double-digit recurring revenue growth, a roughly ten-point improvement on the Rule of 40 year-over-year, and we're on pace to potentially have one of our best years in the company's history in terms of free cash flow generation. I firmly believe our market and our company is in the midst of an inflection point as the shift to a digital-first world continues to accelerate. Our vision for the SKY platform is becoming a reality, and we're fueling future growth opportunities through additional investment in innovation, customer success, security, cloud infrastructure and a higher velocity go-to-market motion. We are raising our financial outlook for full-year 2021 revenue, profitability and free cash flow, and we expect to see further acceleration in our full-year recurring revenue growth rate into 2022."

Third Quarter 2021 Results Compared to Third Quarter 2020 Results:

* Total GAAP revenue was $231.2 million, up 7.5%, with $218.5 million in GAAP recurring revenue, up 9.2%. * Non-GAAP organic recurring revenue increased 9.2%. * GAAP income from operations was $11.8 million, with GAAP operating margin of 5.1%, an increase of 40 basis points. * Non-GAAP income from operations was $50.5 million, with non-GAAP operating margin of 21.8%, a decrease of 60 basis points. * GAAP net income was $6.2 million, with GAAP diluted earnings per share of $0.13, up $0.03 per share. * Non-GAAP net income was $37.9 million, with non-GAAP diluted earnings per share of $0.78, up $0.05 per share. * Non-GAAP adjusted EBITDA was $62.4 million, up $3.0 million, with non-GAAP adjusted EBITDA margin of 27.0%. * GAAP net cash provided by operating activities was $69.9 million, a decrease of $1.8 million. * Non-GAAP free cash flow was $57.9 million, an increase of $16.5 million.

"We expected an acceleration of revenue performance in the second half of 2021, and Q3 not only delivered, but exceeded that expectation, serving as a proof point for what's achievable as we progress against the growth and margin initiatives laid out at our investor session earlier this year," said Tony Boor, executive vice president and CFO, Blackbaud. "With three quarters behind us, and a particularly strong third quarter, we have high confidence in our ability to exceed the $920 million high end of our upside revenue scenario for 2021. This may even prove to be conservative depending on our fourth quarter transactional revenue performance. We expect to achieve an adjusted EBITDA margin of at least 26% for full year 2021, inclusive of heightened investments planned for the fourth quarter, and our strong performance year-to-date combined with our outlook for Q4 suggests we should generate at least $150 million in free cash flow. As we finalize our plans for next year, it is clear the return to at least mid-single digit revenue growth is likely to happen faster than we expected, and we are focused on fueling future growth through additional investments."

An explanation of all non-GAAP financial measures referenced in this press release is included below under the heading "Non-GAAP Financial Measures." A reconciliation of the company's non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Recent Company Highlights:

* During the third quarter, Blackbaud repurchased 583,280 shares of its common stock at a total cost of $40.3 million, leaving approximately $111 million remaining under existing share repurchase authorization of $250 million. * For the 22nd year, Blackbaud rallied tens of thousands of social good professionals at bbcon 2021 Virtual, the company's annual tech conference for a better world. Blackbaud announced high-impact product enhancements and provided hundreds of hours of free, best-practice content and inspiration. * Blackbaud was featured in Microsoft's #BuildFor2030 campaign as a company accelerating nonprofits' missions and impact. * In October, Blackbaud hosted its semi-annual Product Update Briefings, sharing details on innovation, new features and product roadmaps. * The company shared details on its remote-first workforce approach, which enables Blackbaud to focus on hiring talent and growing careers, regardless of location. * Blackbaud was named a finalist in the U.S. Chamber of Commerce Foundation's Citizens Awards-a long-standing program that honors businesses for the impact they make in communities around the world.

Visit www.blackbaud.com/newsroom for more information about Blackbaud's recent highlights.

Conference Call Details:

What: Blackbaud's 2021 Third Quarter Conference Call

When: November 4, 2021

Time: 8:00 a.m. (Eastern Time)

Live Call: 1-877-407-3088 (US/Canada)

Webcast: Blackbaud's Investor Relations Webpage

About BlackbaudBlackbaud (NASDAQ: BLKB) is the world's leading cloud software company powering social good. Serving the entire social good community-nonprofits, higher education institutions, K-12 schools, healthcare organizations, faith communities, arts and cultural organizations, foundations, companies and individual change agents-Blackbaud connects and empowers organizations to increase their impact through cloud software, services, expertise and data intelligence. The Blackbaud portfolio is tailored to the unique needs of vertical markets, with solutions for fundraising and CRM, marketing, advocacy, peer-to-peer fundraising, corporate social responsibility, school management, ticketing, grantmaking, financial management, payment processing and analytics. Serving the industry for four decades, Blackbaud is headquartered in Charleston, South Carolina, and has operations in the United States, Australia, Canada, Costa Rica and the United Kingdom. For more information, visit www.blackbaud.com, or follow us on Twitter, LinkedIn, Instagram, and Facebook.

Investor Contact: Media Contact:

Steve Hufford media@blackbaud.com

Director, Investor Relations

IR@blackbaud.com

Forward-Looking StatementsExcept for historical information, all of the statements, expectations, and assumptions contained in this news release are forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding the predictability of our financial condition and results of operations. These statements involve a number of risks and uncertainties. Although Blackbaud attempts to be accurate in making these forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. In addition, other important factors that could cause results to differ materially include the following: management of integration of acquired companies; uncertainty regarding increased business and renewals from existing customers; a shifting revenue mix that may impact gross margin; continued success in sales growth; cybersecurity and data protection risks and related liabilities; uncertainty regarding the COVID-19 disruption; potential litigation involving us; and the other risk factors set forth from time to time in the SEC filings for Blackbaud, copies of which are available free of charge at the SEC's website at www.sec.gov or upon request from Blackbaud's investor relations department. Blackbaud assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

TrademarksAll Blackbaud product names appearing herein are trademarks or registered trademarks of Blackbaud, Inc.

Non-GAAP Financial MeasuresBlackbaud has provided in this release financial information that has not been prepared in accordance with GAAP. Blackbaud uses non-GAAP financial measures internally in analyzing its operational performance. Accordingly, Blackbaud believes these non-GAAP measures are useful to investors, as a supplement to GAAP measures, in evaluating its ongoing operational performance and trends and in comparing its financial results from period-to-period with other companies in Blackbaud's industry, many of which present similar non-GAAP financial measures to investors. However, these non-GAAP financial measures may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies.

The non-GAAP financial measures discussed above exclude the impact of certain transactions that Blackbaud believes are not directly related to its operating performance in any particular period, but are for its long-term benefit over multiple periods. Blackbaud believes these non-GAAP financial measures reflect its ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in its business.

While Blackbaud believes these non-GAAP measures provide useful supplemental information, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures.

Non-GAAP free cash flow is defined as operating cash flow less capital expenditures, including costs required to be capitalized for software development, and capital expenditures for property and equipment.

In addition, Blackbaud uses non-GAAP organic revenue growth, non-GAAP organic revenue growth on a constant currency basis and non-GAAP organic recurring revenue growth, in analyzing its operating performance. Blackbaud believes that these non-GAAP measures are useful to investors, as a supplement to GAAP measures, for evaluating the periodic growth of its business on a consistent basis. Each of these measures excludes incremental acquisition-related revenue attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal year, each of these measures reflects presentation of full-year incremental non-GAAP revenue derived from such companies as if they were combined throughout the prior period, and it includes the non-GAAP revenue attributable to those companies, as if there were no acquisition-related write-downs of acquired deferred revenue to fair value as required by GAAP. In addition, each of these measures excludes prior period revenue associated with divested businesses. The exclusion of the prior period revenue is to present the results of the divested businesses within the results of the combined company for the same period of time in both the prior and current periods. Blackbaud believes this presentation provides a more comparable representation of its current business' organic revenue growth and revenue run-rate.

Rule of 40 is defined as non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. Non-GAAP adjusted EBITDA is defined as GAAP net income plus interest, net; income tax provision; depreciation; amortization of intangible assets from business combinations; amortization of software development costs; acquisition-related deferred revenue write-down; stock-based compensation; acquisition-related integration costs; acquisition-related expenses; employee severance; restructuring and other real estate activities; and costs, net of insurance, related to the previously disclosed security incident discovered in May 2020 (the "Security Incident").

(dollars in thousands) September 30,December 31, 2021 2020

Assets

Current assets:

Cash and cash equivalents $ 27,591 $35,750

Restricted cash 216,122 609,219

Accounts receivable, net of allowance of $10,847 and $10,292 at105,873 95,404 September 30, 2021 and December 31, 2020, respectively

Customer funds receivable 6,076 321

Prepaid expenses and other current assets 102,319 78,366

Total current assets 457,981 819,060

Property and equipment, net 103,346 105,177

Operating lease right-of-use assets 19,652 22,671

Software development costs, net 118,860 111,827

Goodwill 635,912 635,854

Intangible assets, net 249,494 277,506

Other assets 69,699 72,639

Total assets $ 1,654,944$2,044,734

Liabilities and stockholders' equity

Current liabilities:

Trade accounts payable $ 38,388 $27,836

Accrued expenses and other current liabilities 58,579 52,228

Due to customers 220,785 608,264

Debt, current portion 12,948 12,840

Deferred revenue, current portion 329,426 312,236

Total current liabilities 660,126 1,013,404

Debt, net of current portion 514,418 518,193

Deferred tax liability 56,144 54,086

Deferred revenue, net of current portion 4,528 4,678

Operating lease liabilities, net of current portion 13,470 17,357

Other liabilities 9,421 10,866

Total liabilities 1,258,107 1,618,584

Commitments and contingencies

Stockholders' equity:

Preferred stock; 20,000,000 shares authorized, none outstanding- -

Common stock, $0.001 par value; 180,000,000 shares authorized, 62,353,643 and 60,904,638 shares issued at September 30, 2021 62 61 and December 31, 2020, respectively

Additional paid-in capital 634,406 544,963

Treasury stock, at cost; 14,039,117 and 12,054,268 shares at (490,456) (353,091) September 30, 2021 and December 31, 2020, respectively

Accumulated other comprehensive income (loss) 3,319 (2,497)

Retained earnings 249,506 236,714

Total stockholders' equity 396,837 426,150

Total liabilities and stockholders' equity $ 1,654,944$2,044,734

Three months ended Nine months ended (dollars in thousands, except per share amounts)September 30, September 30, 2021 2020 2021 2020

Revenue

Recurring $218,530 $200,102 $642,266 $621,229

One-time services and other 12,688 14,899 37,583 49,384

Total revenue 231,218 215,001 679,849 670,613

Cost of revenue

Cost of recurring 95,823 84,251 279,123 265,172

Cost of one-time services and other 11,858 14,434 40,013 43,317

Total cost of revenue 107,681 98,685 319,136 308,489

Gross profit 123,537 116,316 360,713 362,124

Operating expenses

Sales, marketing and customer success 44,703 48,460 138,948 159,149

Research and development 31,566 22,783 90,967 72,655

General and administrative 34,733 34,132 97,328 89,829

Amortization 558 749 1,674 2,219

Restructuring 131 105 263 179

Total operating expenses 111,691 106,229 329,180 324,031

Income from operations 11,846 10,087 31,533 38,093

Interest expense (4,003) (3,997) (14,171) (12,049)

Other income, net 862 542 339 2,242

Income before provision for income taxes 8,705 6,632 17,701 28,286

Income tax provision 2,517 1,756 4,946 6,948

Net income $6,188 $4,876 $12,755 $21,338

Earnings per share

Basic $0.13 $0.10 $0.27 $0.44

Diluted $0.13 $0.10 $0.26 $0.44

Common shares and equivalents outstanding

Basic weighted average shares 47,542,74648,271,13947,554,74648,182,799

Diluted weighted average shares 48,274,07248,859,70748,259,95648,582,068

Other comprehensive (loss) income

Foreign currency translation adjustment (3,234) 4,661 1,060 (1,954)

Unrealized gain (loss) on derivative 262 943 4,756 (1,628) instruments, net of tax

Total other comprehensive (loss) income (2,972) 5,604 5,816 (3,582)

Comprehensive income $3,216 $10,480 $18,571 $17,756

Nine months ended September 30,

(dollars in thousands) 2021 2020

Cash flows from operating activities

Net income $12,755 $21,338

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 60,484 68,755

Provision for credit losses and sales returns 7,992 10,156

Stock-based compensation expense 89,480 54,556

Deferred taxes 400 1,879

Amortization of deferred financing costs and discount 1,234 569

Other non-cash adjustments (527) 2,203

Changes in operating assets and liabilities, net of acquisition and disposal of businesses:

Accounts receivable (18,779) (18,319)

Prepaid expenses and other assets (14,169) 4,292

Trade accounts payable 10,728 (17,203)

Accrued expenses and other liabilities 2,790 (31,595)

Deferred revenue 17,400 12,534

Net cash provided by operating activities 169,788 109,165

Cash flows from investing activities

Purchase of property and equipment (8,332) (25,836)

Capitalized software development costs (29,661) (32,028)

Net cash used in investing activities (37,993) (57,864)

Cash flows from financing activities

Proceeds from issuance of debt 128,300 267,400

Payments on debt (131,272)(290,999)

Debt issuance costs - (593)

Employee taxes paid for withheld shares upon equity award settlement (39,012) (21,286)

Proceeds from exercise of stock options - 4

Change in due to customers (386,973)(337,821)

Change in customer funds receivable (5,838) (4,495)

Purchase of treasury stock (98,353) -

Dividend payments to stockholders - (5,960)

Net cash used in financing activities (533,148)(393,750)

Effect of exchange rate on cash, cash equivalents and restricted cash 97 (623)

Net decrease in cash, cash equivalents and restricted cash (401,256)(343,072)

Cash, cash equivalents and restricted cash, beginning of period 644,969 577,295

Cash, cash equivalents and restricted cash, end of period $243,713$234,223

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown above in the consolidated statements of cash flows:

(dollars in thousands) September 30,December 31, 2021 2020

Cash and cash equivalents $27,591 $35,750

Restricted cash 216,122 609,219

Total cash, cash equivalents and restricted cash in the statement of cash flows$243,713 $644,969

Three months ended Nine months ended (dollars in thousands, except per share amounts) September 30, September 30, 2021 2020 2021 2020

GAAP Revenue $231,218 $215,001 $679,849 $670,613



GAAP gross profit $123,537 $116,316 $360,713 $362,124

GAAP gross margin 53.4 %54.1 %53.1 %54.0 %

Non-GAAP adjustments:

Add: Stock-based compensation expense 4,263 3,688 14,858 7,123

Add: Amortization of intangibles from business 8,595 9,219 26,603 29,835 combinations

Add: Employee severance 14 - 29 813

Subtotal 12,872 12,907 41,490 37,771

Non-GAAP gross profit $136,409 $129,223 $402,203 $399,895

Non-GAAP gross margin 59.0 %60.1 %59.2 %59.6 %



GAAP income from operations $11,846 $10,087 $31,533 $38,093

GAAP operating margin 5.1 %4.7 %4.6 %5.7 %

Non-GAAP adjustments:

Add: Stock-based compensation expense 28,926 20,843 89,480 54,556

Add: Amortization of intangibles from business 9,153 9,968 28,277 32,054 combinations

Add: Employee severance 68 232 1,510 4,593

Add: Acquisition-related integration costs (17) (15) (115) (118)

Add: Acquisition-related expenses 67 64 196 288

Add: Restructuring and other real estate activities (420) 6,943 (413) 7,017

Add: Security Incident-related costs, net of insurance^(1)851 - 1,321 -

Subtotal 38,628 38,035 120,256 98,390

Non-GAAP income from operations $50,474 $48,122 $151,789 $136,483

Non-GAAP operating margin 21.8 %22.4 %22.3 %20.4 %



GAAP income before provision for income taxes $8,705 $6,632 $17,701 $28,286

GAAP net income $6,188 $4,876 $12,755 $21,338



Shares used in computing GAAP diluted earnings per share 48,274,072 48,859,707 48,259,956 48,582,068

GAAP diluted earnings per share $0.13 $0.10 $0.26 $0.44



Non-GAAP adjustments:

Add: GAAP income tax provision 2,517 1,756 4,946 6,948

Add: Total non-GAAP adjustments affecting income from 38,628 38,035 120,256 98,390 operations

Non-GAAP income before provision for income taxes 47,333 44,667 137,957 126,676

Assumed non-GAAP income tax provision^(2) 9,467 8,933 27,592 25,335

Non-GAAP net income $37,866 $35,734 $110,365 $101,341



Shares used in computing non-GAAP diluted earnings per 48,274,072 48,859,707 48,259,956 48,582,068 share

Non-GAAP diluted earnings per share $0.78 $0.73 $2.29 $2.09

Includes Security Incident-related costs incurred during the three and nine months ended September 30, 2021 of $11.4 million and $35.9 million, respectively, net of probable insurance recoveries during the same periods of (1) $10.6 million and $34.5 million, respectively. Recorded expenses consisted primarily of payments to third-party service providers and consultants, including legal fees, as well as settlements of customer claims. Not included in this adjustment were costs associated with enhancements to our cybersecurity program.

(2) Blackbaud applies a non-GAAP effective tax rate of 20.0% when calculating non-GAAP net income and non-GAAP diluted earnings per share.

Three months ended Nine months ended (dollars in thousands) September 30, September 30, 2021 2020 2021 2020

GAAP revenue $231,218 $215,001$679,849 $670,613

GAAP revenue growth 7.5 % 1.4 %

Add: Non-GAAP acquisition-related revenue^(1) - - - -

Non-GAAP organic revenue^(2) $231,218 $215,001$679,849 $670,613

Non-GAAP organic revenue growth 7.5 % 1.4 %



Non-GAAP organic revenue^(2) $231,218 $215,001$679,849 $670,613

Foreign currency impact on non-GAAP organic revenue^(3) (2,049) - (8,392) -

Non-GAAP organic revenue on constant currency basis^(3) $229,169 $215,001$671,457 $670,613

Non-GAAP organic revenue growth on constant currency basis6.6 % 0.1 %



GAAP recurring revenue $218,530 $200,102$642,266 $621,229

GAAP recurring revenue growth 9.2 % 3.4 %

Add: Non-GAAP acquisition-related revenue^(1) - - - -

Non-GAAP organic recurring revenue $218,530 $200,102$642,266 $621,229

Non-GAAP organic recurring revenue growth 9.2 % 3.4 %

Non-GAAP acquisition-related revenue excludes incremental acquisition-related revenue calculated in accordance with GAAP that is attributable to companies acquired in the current fiscal year. For companies acquired in the immediately preceding fiscal(1) year, non-GAAP acquisition-related revenue reflects presentation of full-year incremental non-GAAP revenue derived from such companies, as if they were combined throughout the prior period, and it includes the non-GAAP revenue from the acquisition-related deferred revenue write-down attributable to those companies.

Non-GAAP organic revenue for the prior year periods presented herein may not agree to non-GAAP organic revenue presented in the(2) respective prior period quarterly financial information solely due to the manner in which non-GAAP organic revenue growth is calculated.

To determine non-GAAP organic revenue growth on a constant currency basis, revenues from entities reporting in foreign currencies were translated to U.S. Dollars using the comparable(3) prior period's quarterly weighted average foreign currency exchange rates. The primary foreign currencies creating the impact are the Australian Dollar, British Pound, Canadian Dollar and EURO.

Three months ended Nine months ended (dollars in thousands) September 30, September 30, 2021 2020 2021 2020

GAAP net income $6,188 $4,876 $12,755 $21,338

Non-GAAP adjustments:

Add: Interest, net 3,921 3,230 13,860 10,650

Add: GAAP income tax provision 2,517 1,756 4,946 6,948

Add: Depreciation 3,135 3,722 9,486 10,858

Add: Amortization of intangibles from business 9,153 9,968 28,277 32,054 combinations

Add: Amortization of software development costs^(1) 7,986 7,789 24,068 24,828

Subtotal 26,712 26,465 80,637 85,338

Non-GAAP EBITDA $32,900 $31,341$93,392 $106,676

Non-GAAP EBITDA margin 14.2 % 13.7 %



Non-GAAP adjustments:

Add: Stock-based compensation expense 28,926 20,843 89,480 54,556

Add: Employee severance 68 232 1,510 4,593

Add: Acquisition-related integration costs (17) (15) (115) (118)

Add: Acquisition-related expenses 67 64 196 288

Add: Restructuring and other real estate activities (420) 6,943 (413) 7,017

Add: Security Incident-related costs, net of insurance^(2)851 - 1,321 -

Subtotal 29,475 28,067 91,979 66,336

Non-GAAP Adjusted EBITDA $62,375 $59,408$185,371 $173,012

Non-GAAP Adjusted EBITDA margin 27.0 % 27.3 %



Rule of 40^(3) 34.5 % 28.7 %

(1) Includes amortization expense related to software development costs and amortization expense from capitalized cloud computing implementation costs.

Includes Security Incident-related costs incurred, net of probable insurance(2) recoveries. See additional details in the reconciliation of GAAP to Non-GAAP operating income above.

(3) Measured by non-GAAP organic revenue growth plus non-GAAP adjusted EBITDA margin. See Non-GAAP organic revenue growth table above.

Nine months ended (dollars in thousands) September 30, 2021 2020

GAAP net cash provided by operating activities$169,788$109,165

Less: purchase of property and equipment (8,332) (25,836)

Less: capitalized software development costs (29,661) (32,028)

Non-GAAP free cash flow $131,795$51,301

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SOURCE Blackbaud, Inc.